Despite a bumpy start, two of the newest coal firms to mine in Wyoming’s Powder River Basin are in compliance with tax payment plans established with state and county officials, keeping up with both delinquent and ongoing tax obligations amidst the pandemic.
Coal companies Eagle Specialty Materials and Navajo Transitional Energy remain up to date on their ad valorem, or county production tax, obligations, according to Campbell County Administrative Director Carol Seeger. The owners have also continued to comply with state severance tax dues, Wyoming’s Department of Revenue confirmed.
The companies entered the basin on rocky terms, both taking on massive overdue tax liabilities upon assuming ownership of coal mines through bankruptcy auctions. Eagle Specialty Materials missed its first tax payment. But both firms appear to have since corrected course, complying with established tax obligations associated with mineral production in Wyoming.
This comes as the state faces a looming $1.5 billion revenue decline catalyzed by the COVID-19 pandemic.
What’s more, over the past decade, the amount of county tax delinquencies for energy production increased over 1,700 percent in the state, exceeding $100 million. Over 59 percent of the total amount of delinquencies in the past decade occurred in Campbell County.
Funds collected through mineral taxes form the bulk of the state’s revenue. Missed funds can lead to budget shortfalls and cuts to schools, infrastructure and other basic public services.
Energy companies have been delinquent on $17.2 million in severance tax payments (to the state) since 2010, far less than what they defaulted on in ad valorem taxes (to the counties). This gap prompted lawmakers to propose a new bill to increase the frequency of ad valorem payments. The new legislation was signed into law by the governor this spring.
Eagle Specialty Materials
Eagle Specialty Materials acquired the Belle Ayr and Eagle Butte mines from bankrupt coal firm Blackjewel last October after slogging through months of turbulent court proceedings. By acquiring the pair of mines, the company also inherited millions of dollars in unpaid county, state and federal taxes from the insolvent firm. Yet in December, the Star-Tribune reported Eagle Specialty Materials had missed its first tax payment to the county.
The company had voluntarily agreed to pay taxes to Campbell County for coal extracted at the Belle Ayr and Eagle Butte mines on a monthly basis when it purchased the two mines — among the nation’s largest. Under an October agreement with Campbell County commissioners, Eagle Specialty Materials agreed to pay just half of the $17.5 million in delinquent taxes owed by Blackjewel.
Though it missed the first tax payment due on Dec. 25, Eagle Specialty Materials stayed in communication with the county and set up a monthly payment system, according to the county. It has since been making payments.
The new company also cut a deal with the state of Wyoming over its severance tax liabilities.
In a document obtained through a public records request, the Department of Revenue established a payment agreement in October with the new owner to settle the delinquent sales tax, use tax, mineral severance tax and associated interest and penalties amounting to $11.4 million. As part of the agreement, the Department agreed to cut the company’s tax obligation in half to about $5.5 million. It also waived $40,073 in interest as well as $12,926 in penalties.
The agreement established five payment periods for the company to chip away at these outstanding obligations. It paid $1.1 million at the time the agreement was signed. It will pay the remainder of the delinquent taxes on either an annual or monthly basis between 2021 and 2024.
“Eagle Specialty Materials is currently in compliance with the agreement regarding mineral severance taxes,” Craig Grenvik, administrator for the Mineral Tax Division at Wyoming’s Department of Revenue, wrote in an email Thursday. The company has also paid all severance taxes through March production, Grenvik added. Taxes on April production will not come due until June 25.
Former owner Blackjewel also owed about $886,000 in royalty payments and fees for coal produced after the company filed for Chapter 11 bankruptcy on July 1. That outstanding payment was in addition to the $50 million in unpaid royalties, rent and other charges Blackjewel owed at the time the company filed for bankruptcy.
According to the Office of Natural Resources Revenue, the government’s claim for unpaid royalties is still pending in bankruptcy court.
“The Department, through the representation by the Department of Justice, is continuing to pursue that claim,” a spokesman for the agency said in a statement. “However, since Eagle Specialty Materials (ESM) began operating the Wyoming mines in late 2019, ESM has remitted monthly royalty payments.”
Navajo Transitional Energy Company
Around the same time as Eagle Specialty Materials, another coal company entered the Powder River Basin to scoop up three coal mines from bankrupt Wyoming-based company Cloud Peak Energy.
The Navajo Nation-based coal company, Navajo Transitional Energy Company, acquired the Antelope and Cordero Rojo mines in Wyoming, and the Spring Creek mine in Montana last October.
In February, Campbell County Commissioners voted unanimously to approve a payment plan with NTEC, allowing the company to pay over $40 million in outstanding production and property taxes accumulated by the former owner over time.
NTEC inherited the unpaid taxes from bankrupt coal firm Cloud Peak Energy as part of a sales agreement established when it acquired the mines on Oct. 24.
In the months leading up to its bankruptcy, Cloud Peak Energy failed to pay $8.3 million to the county in the 2018 tax year and $17.8 million in the 2019 tax year. The amount of production tax liability inherited by NTEC for coal mined between January and October of 2019 has yet to be determined, according to the agreement. But NTEC will ultimately assume responsibility for these unpaid taxes, too.
The company agreed to pay $1 million at the time of signing the agreement. It is also required to pay an additional $1 million by the last day of each month throughout the rest of this year. Come 2021, any remaining taxes will be paid on a monthly basis until the end of 2026. If the company falls over 10 days behind on these payments, it will have 18 percent in interest applied to the overdue balance.
But according to Seeger, the Campbell County administrative director, payments have been made to the county. In its latest payment, it sent $1 million in ad valorem taxes to the county Thursday.
As part of the agreement with Cloud Peak Energy, NTEC also agreed to take responsibility for unpaid federal royalties accumulated “through an installment payment plan.” Coal companies must make payments to the federal government for all minerals extracted from public land. For strip mining, royalty payments are typically 12.5 percent of coal’s value. Approximately half of all federal mineral royalty funds flow back to Wyoming.
The new owner of the three Powder River Basin coal mines told the Star-Tribune in January it had established an agreement with the U.S. Interior Department to pay overdue mineral production taxes back to the federal government in installments.
NTEC started paying outstanding royalty payments last month “in good faith,” paying $169,425 to the Office of Natural Resources Revenue on Dec. 30, according to court documents.
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